Global Electronics Inc.
Background information
Global Electronics, Inc. (GEI), headquartered in Sarasota, Florida, designs, manufactures, and markets discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal processing and power-control applications. The company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia. In 1999, GEI 's profitability came down with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company 's standard cost system. There was a feeling that the standard cost system could not truly identify which of the company 's products were profitable and which were not. The lack of an understanding of product profitability, a flawed product mix, and poor marketing and pricing decisions could have contributed to GEI 's financial problems. A combination of internal problems and external threats in an industry characterized by increasing global competition, decreasing product life cycles, product proliferation, and exploding technological capability led to a shake-up of the company 's top management in February 2000. As part of the shake-up, GEI installed a new president, Mike Alberts, and a new controller, Steve Shannon, for the express purpose of strengthening the company 's position in the market and improving its financial performance.
ANALYSIS
Question1. What pre existing conditions (or warning signs) existed within Global Electronics to warrant considering ABC as a possible solution? When these pre existing conditions exist, why does ABC offer a better solution than traditional cost systems? Analysis 1: GEI 's standard cost system assigned manufacturing overhead costs to products based on direct labour dollars. From 1994-1999, the predetermined
Global Electronics, Inc. (GEI), headquartered in Sarasota, Florida, designs, manufactures, and markets discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal processing and power-control applications. The company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia. In 1999, GEI 's profitability came down with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company 's standard cost system. There was a feeling that the standard cost system could not truly identify which of the company 's products were profitable and which were not. The lack of an understanding of product profitability, a flawed product mix, and poor marketing and pricing decisions could have contributed to GEI 's financial problems. A combination of internal problems and external threats in an industry characterized by increasing global competition, decreasing product life cycles, product proliferation, and exploding technological capability led to a shake-up of the company 's top management in February 2000. As part of the shake-up, GEI installed a new president, Mike Alberts, and a new controller, Steve Shannon, for the express purpose of strengthening the company 's position in the market and improving its financial performance.
ANALYSIS
Question1. What pre existing conditions (or warning signs) existed within Global Electronics to warrant considering ABC as a possible solution? When these pre existing conditions exist, why does ABC offer a better solution than traditional cost systems? Analysis 1: GEI 's standard cost system assigned manufacturing overhead costs to products based on direct labour dollars. From 1994-1999, the predetermined